Practice Question #1 full employment government spending (G) increases Assume the economy is in equilibrium at full employment. If government spending (G) increases due to an outbreak of war, what is the impact of the spending on price level, output, and unemployment? What economic condition or problem results? ____ ____ Price Level ____ Output ____ Unemployment Problem: Price Level Real GDP (GDP R ) SRAS 1 AD PL F YFYF LRAS

Practice Question #2 full employmentconsumer indebtedness rises Assume the economy is in equilibrium at full employment. If consumer indebtedness rises, what is the impact of the indebtedness on the price level, output, and unemployment? What economic condition or problem results? Price Level Real GDP (GDP R ) SRAS AD 1 PL F YFYF LRAS ____ ____ Price Level ____ Output ____ Unemployment Problem:

Practice Question #3 full employmentOPEC restricts the supply of oil and raises energy costs across the economy Assume the economy is in equilibrium at full employment. If OPEC restricts the supply of oil and raises energy costs across the economy, what is the impact of the higher production costs on price level, output, and unemployment? What economic problem/condition results? Price Level Real GDP (GDP R ) SRAS 1 AD PL F YFYF LRAS ____ ____ Price Level ____ Output ____ Unemployment Problem:

Practice Question #4 recessiongovernment reduces personal income taxes, Assume the economy is in a recession. If government reduces personal income taxes, what is the impact of the tax cut on price level, output, and unemployment? What economic condition may result? Price Level Real GDP (GDP R ) SRAS LRAS AD 1 PL 1 Y1Y1 ____ ____ Price Level ____ Output ____ Unemployment Condition:

Practice Question #5 the FED increases interest rates by reducing the money supply, Assume the economy is overheated and experiencing serious demand- pull inflation. If the FED increases interest rates by reducing the money supply, what will be the impact of the FED action on the price level, output, and unemployment? What problem or condition may result? Price Level Real GDP (GDP R ) SRAS LRAS AD 1 Y1Y1 PL 1 ____ ____ Price Level ____ Output ____ Unemployment Condition:

Practice Question #6 full employment productivity increases Assume the economy is in equilibrium at full employment. If productivity increases due to technological developments, what is the impact of the increased productivity on the price level, output, and unemployment? Price Level Real GDP (GDP R ) SRAS 1 AD PL F YFYF LRAS ____ ____ Price Level ____ Output ____ Unemployment